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UK regulator paves way for Saudi Aramco flotation with new listing rules

The Financial Conduct Authority has finalised rules for a new premium listing category.

The City regulator has finalised controversial new listing rules that could pave the way for a two trillion US dollar (£1.5 trillion) London flotation of Saudi Aramco.

The Financial Conduct Authority (FCA) said on Friday that it would create a new category from July 1 that will allow sovereign-controlled companies to sidestep some of the requirements for premium listings.

It means state-owned companies, such as Saudi Aramco, will not have to sign up to a controlling shareholder agreement – which require the biggest investor to operate at an arms length from the business – nor be subject to shareholder approval for related party transactions.

The finalised rules, which follow an FCA consultation launched last year, are expected to make London more appealing for a Saudi Aramco listing.

This raises standards. This package recognises that the previous regime did not always work for these companies or their investors FCA chief executive Andrew Bailey

The Saudi oil giant has become the subject of a global charm offensive since it began mulling plans to list 5% of its shares.

FCA chief executive Andrew Bailey said: “These rules mean when a sovereign controlled company lists here, investors can benefit from the protections offered by a premium listing.

“This raises standards. This package recognises that the previous regime did not always work for these companies or their investors.

“These rules encourage more companies to adopt the UK’s high governance standards.”

The FCA’s consultation did not address a rule which requires companies to float more than 25% of its shares, which the regulator can already override at its own discretion.

The regulator’s attempt to cater to big state-owned businesses has drawn criticism from industry groups including the Institute of Directors (IoD).

IoD director general Stephen Martin raised concerns that the new rules water down key corporate governance requirements.

“The IoD is deeply disappointed that the FCA has decided to press ahead with the creation of a new premium listing category which reduces key corporate governance requirements.

“Its very name, ‘premium’ is given to reassure investors that the corporate form they are entrusting with their money has undertaken a commitment to these standards.

“By allocating this term to organisations which are not obliged to meet key requirements in relation to minority shareholder protections and independent directors, a central tenet of UK corporate governance, the FCA not only risks the market’s reputation with investors but the UK’s global reputation as a leader in best practice and good governance.”

The IoD reiterated its recommendation that independent directors should be backed by a binding vote of independent shareholders and the voting constituency as a whole.

Investment Association chief executive Chris Cummings is now calling on the FCA to review this new category in two years’ time to evaluate whether there have been any “unintended consequences” including adverse affects on investors or market standards.

“Listing rules are a minimum, not a target.

“We would encourage companies considering listing in this new category to voluntarily adopt higher standards to reassure investors that their interests will be protected.

“We continue to oppose the inclusion of companies in this new segment in all major equity indices as this would force UK savers to invest in these companies despite the loss of valuable and hard-won investor protections.”

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